FOREX TRADING

The Week Ahead

Highlights

• Greek denouement looms
• RBI hikes, more coming from others
• SNB pulls the rug out from under EUR/CHF
• March 24 UK budget will be critical in pre-election positioning
• CAD–To parity and beyond
• Key data and events to watch next week

Greek denouement looms

FX markets continue to fluctuate broadly in recent ranges, turning with every twist in the ongoing Greek drama. Risk saw higher in the beginning of the past week as EU leaders appeared to be in agreement on a plan to provide an aid package to Greece. Then the German government indicated it could not legally support such a plan and that Greece should seek aid from the IMF, sending EUR/USD and most other risk assets lower into the end of the week. Then on Friday, EU Commission President Barroso confused matters further by advocating a standby financial aid mechanism of coordinated bilateral loans from Euro-area countries. The immediate Greek drama may be entering the final act, though, as next week’s EU summit is likely to see a definitive resolution one way or the other. If European leaders fail to reach an agreement, it will look very bad for Euro-area cohesion, exposing the fiscal vulnerabilities of other members now seen to be on their own, and likely see the Euro suffer as a result.

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USD Higher, Greek Debt Worries, India Hikes Rates

• USD: Higher, Greek fiscal worries, Fed discount rate hike rumors, India hikes rates 25 bps
• JPY: Mixed, FSA says falling land prices confirm Japan’s economy is still in deflation
• EUR: Lower, Greek uncertainty, EU inflation flat
• GBP: Lower, BOE’s Sentance sees risk of UK double dip recession
• CAD and AUD: AUD & CAD lower, Canadian core CPI rises above BOC target, retail sales rise

Overview

The USD traded higher Friday with the EUR pressured by uncertainty about whether the EU will agree to aid Greece. Monitoring the news out of Europe in regard to potential for Greece aid rivals the back and forth reports of whether or not the US Congress has the votes to pass health reform. One report suggests that German officials want Greece to seek help from the IMF. Another report suggests that EU officials and the member states have agreed to help Greece if needed. An official with the German central bank says that Greece should declare insolvency if it can’t finance its debt. USD was also supported by rumors circulating that the Fed may raise the discount rate before next April’s policy meeting. GBP traded lower pressured by a statement from the BOE’s Sentance that there is a risk of a double dip recession in the UK. Commodity currencies were mixed with the AUD pressured by increased fears of a trade war between US and China. CAD traded higher supported by report that Canadian February Core CPI rose above the BOC’s target and January retail sales were strong. The above target Canadian CPI increases the risk of an earlier than expected BOC rate hike. AUD drifted lower pressured by increasing fear of a US China trade war as US officials increased pressure on China to revalue the Yuan. There is a growing risk that the US Congress will name China as a currency manipulator. If the U.S. Congress named China as a currency manipulator China may take some form of retaliation measures. China sent an envoy to Washington Friday to try and ease Chinese trade friction with the US. USD traded to the day’s highs in reaction to report that India hiked rates 25 bps. The rate hike sparked selling of equities and a spike in risk aversion. There were no major US economic reports in today’s trade.

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